Max Stock Ltd

Thank you for joining us today to discuss Maxtalk's first quarter 2022 results. On the call today are Talia Sesser, Chief Corporate Development and Investor Relations Officer, and Nir Dagan, Chief Financial Officer. At this time, all participants are in listen-only mode. Following the presentation, we'll conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. It should be emphasized that during this call, the management team will present the first quarter 2022 results and other information as presented in the investor presentation, and that information includes forward-looking information as defined under the Securities Law 5728-1968. The forward-looking information includes forecasts, projections, estimates, or other information which refer to a future event or matter, the event duration of which is uncertain or not within the company's control. The forward-looking information is based on the current information held by the company or its current adjustments. With that, I'll turn the floor over to Talia Sesser.

Thank you, Rob. Good morning and good afternoon, everyone, and thank you for joining us today. With me on the call today is Nir Dagan, our Chief Financial Officer. As in the previous quarter, earlier today we had an earning call with our Israeli investors, and Ori presented a meaningful amount of the call. Here, again, due to language barriers, I will be doing the first part of the presentation, and Nir will be presenting a deeper dive on our financials. Before we start, as a reminder, there is a presentation accompanying today's prepared remarks. The slides are viewable through the webcast link located under the events section on our IR website. On slide number two, you see our disclaimer. This is our standard disclaimer language, which I think everyone is familiar with. On slide number three, for those of you who do not know MaxTalk, we are Israel's leading extreme value retailer, much like Dollar General is in the U.S. and B&M is in the U.K. We offer a broad assortment of quality products for customers' everyday needs at affordable prices. On slide number four, we turn now to our first quarter results. As you can see, we achieved revenue largely in line with the first quarter last year, along with a strong operating cash flow. Our revenue remains flat thanks to the opening of new branches, which added roughly 10,000 net square meters to our store base and covered for the decline in our same store sales. Passover is a significant holiday in Israel, and the timing of the holiday this year was a main contributor to our 10% decline in same-store sales. We're proud of our team that did an excellent job procuring inventory and achieving gross margins of 39%, despite logistics cost pressures. However, labor costs were up this quarter and negatively impacted our EBITDA and net income margins. We are watching it carefully and believe we can improve it over time, implementing various measures that Nir will detail later on in the presentation. To really appreciate the revenue growth trajectory we've been able to achieve through the volatile pandemic period, I think it is important to note that we delivered a three-year compound annual growth rate of 13% from the pre-pandemic first quarter of 2019. through the first quarter of 2022. This performance, through an incredibly difficult period, highlights the progress we have made, expanding our footprint in Israel and strengthening our position as Israel's leading extreme value retailer. The current environment may also create new opportunities for us. We currently see some opportunities for us in procuring inventory at lower prices, in securing long-term leases contracts, at favorable terms. We see some moderation in shipping costs, and many travel restrictions imposed due to COVID are now lifted. These are all good news for us. Finally, the Israeli government recently announced a plan to address the rising cost of living in Israel, which will include a suite of measures, including a reduction of tariff on multiple imported products, effective in mid-May, and including various household goods, fast-moving consumer goods, and furniture on which the typical custom is roughly 12%. This is applicable for us at Maxtalk, and roughly 90% of our products could benefit from this custom relief. This is a short-term measure, which is effective for the next several months until the end of this year. On slide number five, shifting focus now to our balance sheet as of quarter end, we generated healthy cash flows in Q2, sorry, in Q1 2022, 24 million versus 40 million for full fiscal year 2021, a negative cash flow of 18 million in the prior quarter Q1 2021. Overall, we have ample liquidity with about $60 million in cash to ensure financial flexibility and to support future expansion of activities. Our debt levels are modest with total debt at quarter end of about $78 million. These figures are following a $10 million investment in CapEx mainly related to our new stores investments that I'll detail later on. Regarding our inventory position, inventory at quarter end were about 220 million compared with 240 million at year end and 164 million in Q1 2021. We do not anticipate any further significant building of inventory and expect inventory levels to remain stable at current levels and even slightly go down. On slide number six, as you can see, we saw top-line expansion across all of our categories except for housewares this quarter. The houseware category was negatively impacted by the timing of Passover. We expect to see a rebound in this category, which is our largest one, next quarter, that should offset this timing-related contraction. the double-digit growth that we saw in four of our six largest categories in consumables, in arts and crafts, office and school supplies, and apparel basics. On slide number eight, as you know, store expansion is integral to Max Store growth story. We've said in the past that we see at least one Max Store per city with 30,000 people or more. On slide number eight, you can see our store in Nahariya, located in the northwestern district of Israel. Nahariya's population alone is roughly 58,000, but the store can actually serve the neighboring towns, such as Acre, that has a population of almost 50,000 people as well. The store in Nahariya was opened in February this year and stands 2,800 net square meters. On slide number nine, the second successful store opening in Q1 was Nofagalil in March this year. This store is 2,200 net square meters in size. Again, this is also located in the north part of Israel and also a max big box concept. We see very positive initial performance from both stores. On slide number 10, looking ahead, we plan to open another store, a 4,100 net square meter store in Kfar Saba. This store is located in the center of Israel, northeast of Tel Aviv. The store is expected to be open in the second half of this year and will replace an existing store in an adjacent location. such that the net addition to square meter is roughly 2,900 square meters. Kfar Saba is also a large city, and the population there, just Kfar Saba alone, is 110,000 people, so definitely a store that could serve a significant number of people in the area. On slide number 11, we've also signed a contract for a new store in Beirut Yitzchak. This store is in central Israel. And again, a store that could serve a population of Kiryat Ono and Yehud. Both these cities are together roughly 70,000 people. And there are additional towns in the area that could also come to the store. So We think that the location there is a very good one. On slide number 12, as we said in the past, our goal is to double our net square meters footprint from approximately 40,000 square meters that we had at the end of 2019 to 80,000. And that should be done over the next two to three years. Today, we are approximately at 55,000 square meters, and we expect to be at approximately 60,000 by year end. We continue to see a significant white space opportunity for additional stores over time. On slide number 13, we wanted to illustrate how under-penetrated Israel is compared to the U.S. in terms of discount stores per capita. While we do not expect our whole market to achieve parity with the U.S., we do see a wide delta that adds to our confidence that we can certainly double our footprint in Israel and potentially even more. What you can see in this slide is that the U.S. has almost four times dollar stores per capita versus Israel. And even in the U.S., this dollar store category is still underpenetrated. Slide number 14, in addition to store expansion opportunities, there is plenty to be positive about, even as the economic outlook remains uncertain. And we wanted to highlight a number of counter-cyclical attributes in our model that typically enables continued strength through difficult operating environments. The first one is our sourcing model that allows us to offer products at great prices The second one is that we generate the bulk of our revenue from non-discretionary everyday essentials. They account for roughly 60% of our revenue. And finally, our partner manager model enables us to tightly manage expenses. While Israel is facing some of the same economic pressures as the U.S., namely inflation and rising interest rates, The economy here is so far showing good resilience in the face of such headwinds. With that, I'll turn the floor over to Nir to go through Q1 2022 numbers in detail. Nir.

Thanks, Talia. It is a pleasure to be speaking with you today. Slide 16.